FOREX-Yuan, risk FX cap dollar gains after Sino-U.S. talks

* Yuan hits one-week high on Biden-Xi phone call

* Dollar index edges lower but set for first week of gains in 3

* Aussie, Kiwi benefit, Japanese yen sold

By Ritvik Carvalho

LONDON, Sept 10 (Reuters) – The dollar edged lower on Friday as pro-growth currencies gained following a rise in the Chinese yuan to a one-week high on news that U.S. President Joe Biden and Chinese leader Xi Jinping spoke for the first time in seven months.

In a statement, the White House said Biden and Xi had “a broad, strategic discussion”, including areas where interests and values converge and diverge. The conversation focused on economic issues, climate change and COVID-19, a senior U.S. official told reporters.

The yuan gained 0.2% on the dollar after the news, moving away from the key 6.50 yuan per dollar level to 6.4364 – its highest since Sept. 3.

“We have seen USD/CNH go offered on the news and any surprise improvement/reset in U.S.-China relations could see USD/CNY move further away from the key 6.50 threshold,” said ING strategists in a morning note to clients.

“Such a move is typically positive for pro-cyclical FX and slightly negative for the dollar – hence our down arrow in the dollar today.”

The Australian dollar gained 0.4% to $0.7394, though heading for a 0.7% slide this week. Also boosted by the yuan move was the New Zealand dollar, which gained half a percent to $0.7144. Both currencies tend to benefit when risk sentiment is positive.

The Japanese yen lost 0.2% against the dollar to 109.93 yen while still meandering in the middle of its range of the past two months.

Relations between the United States and China have been testy since Xi and Biden’s first call in February. The two sides have lashed out at each other almost constantly, often with vitriolic public attacks, sanctions on officials and accusations of not upholding international obligations.

The dollar index, which measures the greenback against six major peers, was down less than 0.1% on the day at 92.461, although still on course for a 0.4% weekly rise.

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The greenback has rebounded from a payrolls-induced sell-off last week, as a number of Federal Reserve officials have come out to suggest a taper is still likely this year.

“Risk aversion dominated at the beginning of the week favouring a rebound in the USD index but the move has faded into the weekend,” said Roberto Cobo Garcia, head of G10 FX strategy at BBVA.

“Growth concerns with the Fed acknowledging in its Beige Book on Wednesday that ‘economic growth downshifted slightly to a moderate pace in early July through August,’ may have weighed on the greenback.”

Fed Governor Michelle Bowman said on Thursday that the weak August labour report would not throw the U.S. central bank off course.

Last Friday, the dollar index sank to the lowest since Aug. 3 after data showed the U.S. economy created the fewest jobs for seven months, reducing the odds of an imminent reduction of the Fed’s asset-purchase programme.

Data on Thursday showed that the…